Zillow and Changes to the Real Estate Industry

Real estate site Zillow.com launched last week. Some are predicting that Zillow.com is going to hurt realtors.

But wipe away those tears, realtors. Zillow.com is not going to have as big a negative impact on realtors as predicted.

Zillow.com is a website where you can go to find an instant online valuation of over 60 million homes in the United States.

The founder of Zillow.com is Richard Barton, who also founded Expedia.com a decade ago. A Los Angeles Times story suggests that Zillow may result in reducing realtor commissions, in much the same way Expedia reduced travel agent commissions.

However, I do not see Zillow.com having nearly as dramatic an impact as sites like Expedia had on the travel industry. First of all, the airlines themselves were responsible for a lot of the travel agents’ decline, when they kept cutting and eventually eliminated commissions to travel agents. Second, buying an airline ticket or booking a rental car or hotel, is more or less a commodity purchase. Technology could easily take the place of handling the purchase.

The real estate industry is different in several respects. One of the biggest differences is that realtors typically represent the seller — and most sellers need realtors.

When you want to sell your home, you need someone working for you to sell it. That’s the real value of realtors — their capability to attract willing buyers and put them in front of the average homeowner seller. Pulling together comparable sales and pegging an appropriate valuation is but one aspect of the marketing.

The average homeowner looking to sell does not know how to begin attracting buyers. Even many of those who try the “for sale by owner” packages on the market today, eventually end up listing the house with an agent (at least they do in my neighborhood).

Why? Unless you live in a handful of superhot markets, it is just too hard to sell a house on your own. There is a lot of work involved that homeowners either do not know how to do, or else they do not have the time to do.

Also, the real estate market still operates in favor of realtors. Your property needs to be listed in the Multiple Listing service, and realtors control that. And unless there is a sufficient commission to split between two realtors, you can’t really expect other realtors to refer “their” buyers to your home — there is nothing in it for them. Zillow does not change either of these two conditions.

Zillow.com may have an impact on the real estate industry — but it will be a mixed bag for consumers. If anything, it may have the effect of dampening home prices somewhat by arming the buyer with more negotiating power to dicker for lower prices. But take the place of the realtor who is actively marketing the home? I don’t think so.

I also tend to agree with the good Professor Cornwall that the Zillows of the world give rise to startups and entrepreneurial businesses in totally new categories. So in the end Zillow may lead the industry in some new and positive directions.